Starwood Capital Buys 1 MSF San Diego Office Portfolio

By Barbra Murray, Contributing Editor

Starwood Capital Group closed 2013 with a bang–a 1.1 million-square-foot bang. The investment firm acquired a portfolio of 12 office properties in San Diego, Calif., from Kilroy Realty Capital for $294.5 million.

The assets, which carry addresses in the Sorrento Mesa and Rancho Bernardo submarkets, include 10020 Pacific Mesa Blvd, 6055 Lusk Ave., 5010 and 5005 Wateridge Vista Dr., 15435 and 15445 Innovation Dr., and 15051, 15073, 15231, 15253, 15333 and 15378 Avenue of Science. Together, the properties feature an occupancy level of 91 percent and an average age of roughly 12 years.

Kilroy garnered funds for its West Coast office development program on the transaction and Starwood walked away with an acquisition that it describes as below replacement cost. The portfolio dovetails with Starwood Capital’s strategy of investing in assets that will yield strong cash-on-cash returns in metropolitan markets with limited new supply, strong fundamentals and high barriers to entry. Additionally, as Christopher Graham, senior managing director with Starwood Capital, noted in a prepared statement, “This portfolio is well-positioned to capitalize on the robust recovery in the region.”

And a rebound is, indeed, afoot. “In spite of political and economic uncertainties, the San Diego office market continues on its road to recovery,” according to a fourth quarter report by commercial real estate services firm Jones Lang LaSalle. “Leasing activity is expected to increase over the next year due in part to the growing demand of tenants in the technology industry and projected employment growth in other traditional office-using industries, such as professional and business services.”
Starwood Capital’s acquisition of the collection of office assets was certainly a big deal, but it wasn’t the company’s biggest of 2013, not by far. Last spring, Starwood Capital acquired LNR Property L.L.C. in an approximately $1 billion deal, and in November, it completed the purchase of a 7.9 million-square-foot mall portfolio in a $1.6 billion deal.